Yesterday, news broke that the U.S. Department of Education is recommending that the largest national accreditation agency, Accrediting Council for Independent Colleges and Schools (ACICS), lose the power to act as an intermediary between colleges and billions of dollars in federal financial aid. As one outlet bluntly put it, this could result in a death sentence for ACICS.

At the Christensen Institute, we’ve often noted that accreditation is a key condition that drives business model innovation—or lack thereof—across higher education. Accreditors serve as gatekeepers, which, among other things, determine postsecondary institutions’ eligibility to receive taxpayer funds through Pell Grants and federal student loans.

Sitting at this nexus of distributing funds and providing financial oversight, some accreditors have come under mounting criticism and scrutiny as a number of higher education institutions—particularly for-profits—have been shown to be driving up student debt without a proven track record of successfully graduating or preparing their students for the workforce. Indeed, according to one author’s analysis of the U.S. Department of Education’s data, 71 percent of ACICS schools’ students have federal student loans, and 19 percent default within three years. Only 50 percent graduate, and just 45 percent of enrollees earn a better income than the average high school degree holder.

It’s encouraging to see the U.S. Department of Education cracking down on these distressing trends. But the Department’s bold recommendation this week should not fool us into thinking that treating the symptom—one bad actor—of a broken system will cure the disease. Looking ahead, we need to keep in mind that accreditation is one lever in a complex system of principles and policies that will need to shift radically in order to truly unlock business models that drive quality and affordability in higher education.

Regulate based on outcomes, not inputs

To do this, we need to be candid about the fact that accreditors are the foot soldiers of state and federally administered loan and grant systems that only recently pivoted to attempting to attend to outcomes rather than inputs. Historically, these funding streams followed student enrollment, rather than student success. This meant that there was little to no pressure on accreditors and postsecondary institutions alike to optimize for lower loan default rates or better post-graduation outcomes among students.

In other words, accreditors’ priorities are a symptom of broader system-wide incentive structures resulting from federal aid policies, bloated postsecondary business models, and paltry data collection on long-term student academic and employment outcomes.

Looking ahead, new funding and quality assurance structures could usher in better incentives to not just protect students, but also help them thrive. Some possible paths forward for regulating outcomes, not inputs, might involve creating risk-sharing programs with the new institutions and broadening the use of income share agreements; giving students the dollars up front and creating far more data transparency around program outcomes so students can make more informed choices; paying programs based on student outcomes in accordance with a concept we had a while back called the QV Index that aligns to employment and broader student satisfaction outcomes; experimenting with accreditors that operate like charter authorizers or employer organizations that operate as de facto accrediting bodies; and encouraging states to try more experimentation themselves across a broader range of ideas.

Pair innovative programs with innovative regulation

If we want the education system to look different—more affordable and more likely to yield employment outcomes—we’ll need to see more than just accreditation shift. We’ll need both innovative delivery models and innovative quality assurance models. One U.S. Department of Education pilot is trying to do just that. The Educational Quality through Innovative Partnerships (EQUIP) unlocks federal student aid dollars for providers outside of universities to work with accredited institutions on designing new programs. In return, the partnerships must include a “quality assurance entity” (QAE), a third party that will evaluate and attest to the rigor of the programs. These not only mark important experiments in innovative models, but stand to help move beyond all-or-nothing access to federal dollars that can create race-to-the-bottom incentives.

Look ahead, not backwards

As much as this marks a potential shock to the system—and is likely to lead to important conversations about how best to serve students attending institutions with such poor track records—truly modernizing accreditation must involve more than policing bad actors or plugging loopholes. (If the tax code is any indication, building a regulatory apparatus that simply expands to address each new loophole we want to tackle makes for an inefficient and hard-to-navigate system.) In the long run, students will benefit most if we grow a wholly new quality assurance and funding structure that moves away from a byzantine regulatory system that has buoyed high fixed-cost business models across higher education. Indeed, simply making existing accreditors behave better will not fundamentally eliminate inefficiencies and warped incentives in the current higher education system. More efforts like EQUIP could help chart a path forwards to help rethink outcome-based accreditation from the ground up.

The National Advisory Committee on Institutional Quality and Integrity (NACIQI) will determine ACICS’s fate at a hearing next Thursday. But amidst what could be an unprecedented and encouraging crackdown on troubling accreditation practices and even more troubling student default and dropout rates, let’s make sure that moving forward we tackle the causes that put ACICS on trial in the first place.

Julia is the director of education research at the Clayton Christensen Institute. She leads a team that educates policymakers and community leaders on the power of disruptive innovation in the K-12 and higher education spheres.

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